Gov. Scott Walker’s top aides and a powerful lobbyist pressed for a taxpayer-funded loan in 2011 to a financially struggling Milwaukee construction company that lost the state half a million dollars, created no jobs and raised questions about where the money went, a State Journal investigation has found.
The extraordinary steps led the Wisconsin Economic Development Corp. in 2011 to award a $500,000 unsecured loan to Building Committee Inc., owned by William Minahan, for a proposed project to retrofit bank and credit union buildings for energy efficiency.
The loan, which was not repaid, is one of several agency awards that state auditors have questioned since Walker created the agency in 2011. Last year, WEDC, the state’s flagship job-creation agency, took the unusual step of suing BCI in an attempt to get the money back.
The failed deal was made at the urging of then-Administration Secretary Mike Huebsch, who wanted WEDC to provide a forgivable loan to the company eight times that size, according to Paul Jadin, former CEO of WEDC.
Walker’s office confirmed that Huebsch introduced the company’s owner to Jadin. Lobbyist Eric Petersen, who represented BCI and Minahan, and Keith Gilkes, Walker’s former campaign manager who was the governor’s chief of staff at the time, met in June 2011 with Huebsch and Minahan to discuss the loan, according to records obtained by the State Journal under the state’s open records law.
Hours after his office released those and other records to the State Journal on Friday, Walker, who is considering a 2016 presidential bid, called on the Legislature to scrap WEDC’s entire loan program, citing a recent legislative audit.
The push to fund the BCI project came after Minahan gave Walker’s 2010 Republican campaign for governor a last-minute infusion of $10,000 on Election Day — the maximum individual contribution.
Jadin said Minahan and Huebsch -- a nonvoting member of the WEDC board by virtue of his role as Administration secretary -- pushed for a $4.3 million WEDC loan, but the agency could justify no more than a $500,000 loan, which Jadin said he considered “fairly risky.”
“I wanted to assist the company to the extent that they qualified given that it had such a strong endorsement from Secretary Huebsch,” Jadin said.
The State Journal investigation found that Huebsch, a former Assembly speaker from West Salem, was advocating for the taxpayer loan to BCI as the now-defunct company was collapsing.
The State Journal also found that:
- WEDC awarded the unsecured loan to BCI only after Huebsch and other DOA officials were unable to find funding from state or federal energy programs or the utility-funded Focus on Energy program, according to a May 2011 memo.
- WEDC was unable to locate the original underwriting documents justifying the $500,000 loan to BCI. Huebsch’s agency had offered to conduct a “staff review” of the proposed loan for WEDC, but state officials said that review never happened.
- On his 2011 WEDC loan application, Minahan checked “no” when asked if BCI or any of its officers had been sued in the previous five years, although electronic court records show three such lawsuits.
- After Jadin left the agency, WEDC approved BCI’s request for more time to repay the loan and helped it seek federally subsidized energy bonding even as other creditors filed lawsuits against BCI and Minahan seeking half a million dollars for unpaid bills.
- Minahan listed La Crosse-based Michaels Energy and UW-Milwaukee as partners in the proposed project. But the owner of Michaels Energy and the dean of the UW-Milwaukee School of Architecture and Urban Design said their organizations never received any proceeds from the state loan and did little or no work on the project.
Minahan sent two short emails in response to a set of detailed questions posed by the State Journal. He chalked up the failure of the loan to the recession’s impact on the construction industry.
“Having worked in the construction industry since 1982, Wisconsin-based BCI was fortunate to serve the planning, design and construction management needs of hundreds of clients across the country,” Minahan wrote. “WEDC’s initial financial support of our efforts demonstrates their shared vision to find efficiencies and to reduce energy costs for existing private sector and municipally owned buildings in Wisconsin.”
Huebsch, who has since been appointed by the governor to a $129,000-a-year job at the Public Service Commission, released a statement through DOA spokesman Cullen Werwie. In it, he acknowledges working to find funding for Minahan’s project through his former agency and WEDC.
“As the Secretary of DOA, I often worked to connect small businesses with resources that could lead to job creation,” Huebsch’s statement said. “After the initial connection, there was some additional follow-up on my part with WEDC to ask that it be clearly communicated to BCI what additional resources, if any, may be available, as well as to ask that the denial of additional loan funds be communicated directly to BCI.”
Walker spokeswoman Laurel Patrick said Walker was not aware of Minahan’s donation to his gubernatorial campaign. According to the Wisconsin Democracy Campaign, Minahan was one of 32 people who made the maximum $10,000 individual donation to Friends of Scott Walker in 2010.
Petersen said he was not involved in Minahan’s donation but represented clients who did give to Walker’s campaign.
Patrick also said Friday the governor, who chairs the WEDC board, “has not met with Mr. Minahan, nor was he involved in or aware of any part of the loan process concerning The Building Committee Inc.”
She added that “there was no further contact or involvement with our office beyond the initial meeting” involving Gilkes.
In calling Friday for an end to the loan program, Walker did not mention the BCI loan. Instead he cited a recent Legislative Audit Bureau report that found the agency did not always follow its internal policies, including verifying the number of jobs created by aid recipients.
The audit also found that while WEDC had reduced its outstanding loans from $4.2 million to $1.3 million in 2014, most of the decline was due to loans being extended, forgiven or written off.
The $500,000 BCI award was one of 10 loans the agency wrote off last year.
Huebsch pushes funding
Minahan met with Walker administration officials to discuss the loan proposal in June 2011 as Walker was launching WEDC, a public-private organization designed to be more nimble and competent than its predecessor, the Department of Commerce. Walker had promised to help create 250,000 jobs during his first term, and forming the agency was a key vehicle to achieving that goal. In the end, Walker fell short by 100,000 jobs.
Jadin, WEDC’s first chief executive, said Minahan and Huebsch initially sought a $4.3 million forgivable loan for BCI, which specialized in building bank and credit union buildings. The company said its project to retrofit financial buildings for energy efficiency would generate 155 jobs in Wisconsin.
It was the only time Huebsch pushed for a specific deal, Jadin said, adding he first learned of the proposal from Huebsch.
“I don’t recall another situation where the secretary became an advocate,” he said.
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Jadin said he told Huebsch he would have the agency’s underwriters check BCI’s financial viability and come back with a recommendation.
On Sept. 3, 2011, Chris Schoenherr, then-head of DOA’s energy division, sent a WEDC official information about the project, saying “we are on a tight time frame on the first stage of this.”
Weeks later, Jadin signed a $500,000, one-year, unsecured loan. WEDC spokesman Mark Maley said the agency is unable to locate the underwriting documents supporting the loan.
Jadin said Minahan and Huebsch continued to press the case for additional funding after the initial award. Emails show Minahan had multiple contacts with WEDC in late 2011 and early 2012. The agency and Minahan corresponded about terms for additional money.
In one case, WEDC offered BCI another $500,000 if Minahan agreed to provide a personal guarantee of $1 million, which he rejected in February 2012. A few months later, a WEDC underwriter recommended against another proposal, for a $1.5 million loan, noting “the value of the business owned is hard to determine without any supporting financial documentation.”
“At this point in time,” the underwriter wrote, “there does not appear to be a clear source of repayment for the ($500,000) loan. In addition, there does not appear to be adequate collateral to secure additional WEDC funding.”
After the loan was granted, Jadin said he met with Minahan and Huebsch to discuss additional financing.
He said the BCI owner was unable to answer questions about how retrofitting banks and credit unions for energy efficiency would generate jobs aside from “normal construction on normal construction projects.”
“We concluded it was already a fairly risky loan and decided not to provide any additional funding,” Jadin said. “I had very significant concerns about (Minahan’s) ability to deliver on the basic business premise. I believe my position was clear and unambiguous, and Secretary Huebsch understood there were no more funds forthcoming, and he dropped it.”
A state audit later noted the underwriters had warned the original deal did not include any collateral from its owner, meaning the state would not be able to seize property — such as Minahan’s $975,000 home in River Hills — in the case of a default. Jadin said he did not recall that aspect of the loan.
Jadin, a Republican and former mayor of Green Bay, left WEDC on Nov. 1, 2012, a month after the loan was due, to head up MadREP, an economic development group in Madison.
WEDC extends loan
As 2012 came to a close, a BCI representative told WEDC it had run out of money for the project, agency records show. WEDC’s management team, excluding CEO Reed Hall, authorized extending the loan due date to Aug. 1, 2013, Maley said.
In the seven months after the new loan due date, WEDC sent BCI six notices warning the loan was overdue and then in default. Even as it was sending those notices, WEDC and Huebsch’s Department of Administration continued to help BCI in its ultimately unsuccessful effort to secure $4.5 million in federal energy conservation bond funding.
Last July, WEDC sued the company seeking repayment of the loan. On Nov. 4 — the day Walker was elected to his second term as governor — a Dane County Circuit Court judge ordered BCI to repay the loan plus interest totaling $542,000. BCI has not repaid the loan.
Hall, Jadin’s successor, declined to be interviewed.
“Throughout this process, WEDC diligently monitored and tracked this loan,” Maley said. “When it became clear BCI was unable to secure funding to repay the loan, WEDC aggressively pursued repayment through past-due and default notices, and eventually by taking the company to court to secure a judgment against BCI.”
The $500,000 loan may have been even riskier than WEDC officials knew.
The loan application asked whether the applicant or any owner or officer had been sued in the previous five years, warning that the applicant “will be deemed ineligible and denied based on the falsification of information.” Minahan checked “no” to that question.
But electronic court records show at least three lawsuits against the company in 2010, including one in which BCI was ordered to pay $14,364 to Superior Safe & Security of Green Bay. The second was a $15,800 tax warrant from the state of Wisconsin that Minahan paid. The third was filed by an Oshkosh custom millwork company but was dismissed.
It’s also unclear what work BCI performed on the taxpayer-funded energy project.
A 2012 report to WEDC from Minahan purported to detail how the funding was used, but it did not list who did what work nor how much they were paid. The three buildings it said were readied for retrofit were not identified, nor were the seven buildings that the report said had preliminary planning work done on them.
Officials with La Crosse-based Michaels Energy and UW-Milwaukee also questioned BCI’s characterization of them in the report as partners in the project.
Michaels Energy’s owner David Waffenschmidt told the State Journal that he spoke with Minahan and BCI chief operating officer David Jaeckels in 2009 about a possible retrofit project and did some preliminary work on it but assumed the proposal had been dropped.
“We were not aware of, and not party to, the contract between Building Committee Inc. and WEDC, nor did we receive any payment from Building Committee Inc. or anyone else for our work on these development efforts,” Waffenschmidt said. “We talked about doing this, but that’s all the farther it went.”
Robert Greenstreet, dean of the UW-Milwaukee architectural school, said he discussed the energy retrofit project with Minahan and Jaeckels and helped submit applications for federal funding. But Greenstreet said it was his perception that BCI “collapsed,” no federal money was secured, and he assumed the project never got off the ground. Greenstreet recalled Minahan saying BCI had lined up state funding, but there was a delay in getting the money.
“The long and short of it is, we have not done any work on this project at all,” he said.
Editor's Note: This story has been amended online to reflect that Mike Huebsch is a nonvoting board member of the Wisconsin Economic Development Corporation.