By Andy Sullivan
WASHINGTON (Reuters) - When Wisconsin Governor Scott Walker, a potential Republican presidential candidate, traveled on a trade mission to Britain last week, he brought along top officials from his economic development agency to help drum up jobs. It's a task they have struggled to accomplish at home.
The Wisconsin Economic Development Corporation, a public-private body set up by Walker shortly after he took office in January 2011, was supposed to help the state climb out of recession by shedding bureaucratic rules and drawing on private-sector expertise.
But the WEDC has fallen short of its own goals by tens of thousands of jobs and failed to keep track of millions of dollars it has handed out. One reason for the agency's disappointing performance: Walker's overhaul of the state bureaucracy drove away seasoned development workers, economic development experts who work closely with the agency told Reuters.
Critics say the WEDC's struggles highlight a significant gap in Walker's resume as he lays the groundwork for a likely Republican presidential bid in the 2016 election: his middling record on job creation.
"Essentially we've been surfing on the national recovery," said Marc Levine, a senior fellow at the University of Wisconsin-Milwaukee's Center for Economic Development. "The idea was that Wisconsin policies are better than the national policies and we were going to move ahead of the national rate. That clearly hasn't happened."
Walker's office dismisses such criticism, saying the WEDC, which he chairs, is one part of a comprehensive strategy that includes tax cuts, streamlined regulations, worker training and targeted investments in areas like energy and shipbuilding.
"The Wisconsin Economic Development Corporation has been an important driver in spurring economic growth and opportunities in Wisconsin," Walker spokeswoman Laurel Patrick said. The increased pace of job creation - 54,100 new positions in the past 12 months - is a sign that Walker's economic stewardship is paying off, she said.
The WEDC also defended its performance, saying investments typically take time to create jobs.
Some economists say agencies like the WEDC have limited impact on job creation in any state. Development efforts tend to move the needle less than other factors like taxes or spending and the state of the U.S. and global economy.
Private-sector employment has grown by 6.8 percent in Wisconsin under Walker, behind the national pace of 8.4 percent, according to preliminary data from the U.S. Bureau of Labor Statistics. Private-sector employment in the industrial Midwest, from Ohio to Minnesota, grew by 7.1 percent over that period.
BLS data show that Wisconsin has created 158,000 private-sector jobs under Walker's leadership, short of his pledge to create 250,000 jobs by 2015.
Manufacturing-heavy economies like Wisconsin tend to recover more slowly from recessions, and the political turmoil of Walker's first few years in office may have slowed investment, according to economists on the left and the right. Walker's push to curb pension and health benefits and limit collective bargaining for public sector workers prompted mass protests and a recall election in 2012, which Walker survived.
"The 2012 election caused a lot of uncertainty," said Jesse Hathaway, a budget and tax expert at the conservative Heartland Institute. "Businesses put off expansion plans, waiting it out until things calmed down."
Those battles with state employees prompted rank and file employees to flee the new agency, leaving fewer experienced workers to help the new body get on its feet, according to two Democratic lawmakers who sit on the agency's board and two economic development officials who work for other state bodies and are familiar with the issue of staff leaving the WEDC.
"We had a mass exodus of seasoned, senior people going to the private sector," said Steven Deller, a University of Wisconsin professor who has worked extensively on economic-development projects in the state. "So the state's economic development arm was out of commission for a long time."
Only 25 percent of those who worked at WEDC when it started are still there now, according to a former top state economic development official who spoke on condition of anonymity.
A WEDC spokesman declined to say how many employees have left the agency and Reuters was unable to independently confirm the figure of 25 percent.
"While some employees have left WEDC since its creation in 2011, our staff is focused on its mission of working closely with companies and other key partners around the state to create jobs and continue to grow Wisconsin’s economy," WEDC spokesman Mark Maley said.
Walker also moved too hastily to dismantle the existing state Department of Commerce and set up the new agency, said Democratic state Senator Julie Lassa, who sits on the WEDC board of directors. While Ohio set up its own public-private development agency over a period of years, Walker's agency made the switch in less than six months.
The turmoil hasn't been confined to the rank and file. Since 2011, the body has had two chief executive officers and is now looking for its third chief operating officer and fourth chief financial officer.
State legislative audits have found that WEDC has mismanaged taxpayer funds and handed out awards to companies that should not have been eligible for them. The agency also didn't follow up to ensure that jobs were actually being created and failed to track whether businesses were paying their loans back on time, according to reviews in 2012 and 2013. Lassa said the agency had improved its performance somewhat since then.
The agency also awarded job-creation grants to companies that have shipped jobs overseas, prompting Walker to promise reforms during his 2014 re-election campaign. Since then, the agency has adopted rules that prohibit companies from using WEDC funds to outsource jobs.
The agency has fallen short of its own goals. In its first fiscal year of operation, which ended on June 30, 2012, WEDC reported that it had backed projects that would create or retain 23,759 jobs, short of its goal of 50,000 jobs.
WEDC fell short again the following year, when it reported that it had signed off on projects that would create 11,058 jobs and retain another 26,255, again short of the 50,000 goal.
It reported similar results for the most recent fiscal year, although this time it exceeded its reduced target of 20,825.
WEDC spokesman Maley says the $1 billion in loans, tax breaks and grants it has handed out take several years to bear fruit, and another 20,000 jobs are expected to materialize over coming years. Companies that don't produce the number of jobs they promised face clawbacks of their benefits, he said.
The Water Council, a trade group, praised the role the WEDC played in boosting Milwaukee's growing water-technology sector.
"The great thing is they break down those walls and those boxes - when they see an opportunity, they say, 'What can we do with that?'" said Dean Amhaus, head of the Water Council, a trade group.
(Additional reporting by Howard Schneider, editing by Ross Colvin)