In July 2012, Kohl’s Department Stores secured up to $62.5 million in state tax credits to keep its headquarters in Menomonee Falls.
Three weeks later, the company began threatening layoffs, according to the U.S. Labor Department. Then in August 2013, the company notified the federal government it would be cutting 67 jobs and outsourcing its Milwaukee-based accounts payable and sales audit functions to India.
In the last decade, at least 25 companies with Wisconsin operations have both been awarded state funding and outsourced jobs, according to a State Journal review of U.S. Labor Department, Wisconsin Economic Development Corp. and former state Commerce Department data. In 10 of those cases, the outsourcing occurred after the state funding was awarded.
Outsourcing has become a hot topic in the governor’s race. Gov. Scott Walker has criticized Democratic challenger Mary Burke for making a fortune from her family company that has outsourced bicycle production to China, while Burke has slammed Walker’s flagship job creation agency for awarding funding to companies that later outsourced jobs.
The issue took on more significance last week when Walker — who is unlikely to fulfill his pledge to help create 250,000 new jobs in his first term — voiced support for a new state policy that would discourage companies awarded state resources from outsourcing. Burke — who was Commerce secretary from January 2005 to November 2007 and oversaw financial awards to companies — had previously announced support for such a policy.
While no specific policy has been proposed, the business community is paying close attention to the discussion, especially as companies continue to import parts from abroad, outsource services to lower-wage countries and open factories close to emerging markets.
“If they want to change state policy to prevent companies from outsourcing, they’re going to be down to a handful of companies engaged,” said John Torinus, chairman and former CEO of Serigraph, a West Bend-based global manufacturer. “You get into some pretty tricky waters when you criticize the great job creators of Wisconsin.”
Serigraph is also one of the companies that was awarded state support — $795,000 in economic development tax credits — and outsourced jobs in the past decade. But unlike Kohl’s, Serigraph was awarded the credits more than three years after it outsourced.
A Kohl’s spokeswoman didn’t dispute that the company outsourced jobs after being awarded state tax credits, but noted the credits are spread over 12 years and are dependent upon new jobs being created.
Paul Bartelt, CEO of The Vollrath Company, acknowledged his company imports some parts for products because they can’t be made competitively in the United States. But he said a $258,000 tax credit the company was awarded in 2010 has helped the company create 41 jobs in Wisconsin.
“(Importing) allows us to employ engineers, warehouses, product managers,” Bartelt said. “Even if some of that product is coming from overseas, it’s still being received in the warehouse in Wisconsin.”
Since 2004, at least 338 companies operating in Wisconsin have cut jobs due to international trade. That figure is based on companies where the U.S. Labor Department certified workers for Trade Adjustment Assistance (TAA), which for decades has helped retrain, re-employ and support workers laid off due to global trade. Groups of affected workers file petitions with the government to receive the benefits.
Nearly 450 TAA petitions affecting 37,841 workers were certified for companies with operations in Wisconsin between 2005 and 2013.
Not all of those companies “outsourced,” a term that can refer to many different things. Some lost sales to lower-cost competitors who outsourced. Others, such as Sussex-based Quad Graphics, acquired or opened foreign operations that sold directly to those markets while reducing their U.S. workforce.
But in the vast majority of cases nationally, TAA grants result from companies moving production or services to foreign countries or importing products.
To come up with its list of the 25 companies that have been awarded state funding and outsourced jobs, the State Journal identified those operations awarded WEDC or Commerce funds since 2005 and compared them to companies the Labor Department identified as having outsourced jobs since then.
One company with workers who recently qualified for federal assistance is Trek Bicycles, the Waterloo-based manufacturer founded by Burke’s father and where Burke worked for many years in global sales forecasts.
Last August, a Department of Workforce Development employment and training specialist filed a petition with the Labor Department on behalf of 15 to 20 Trek employees who reported losing their jobs due to outsourcing.
“The workers were told if production numbers did not start to rise then Trek would have to close the line down and shift the line to China,” the petition stated.
The Labor Department conducted an investigation and in November determined outsourcing had occurred. However, Trek spokeswoman Marina Marich said the company disputes that finding.
“While we disagree with the decision and believe it is factually incorrect, we did not contest the government’s decision to provide federal benefits to the affected employees,” Marich said.
Trek workers also qualified for TAA funds in 2004. That petition was filed by Trek to help retrain workers being moved from a Whitewater facility to a Waterloo facility. Trek workers qualified because the company’s imports increased while jobs at the Whitewater facility declined.
A decade earlier, Trek received an $875,000 state Commerce Department loan to expand capacity at the same Whitewater facility. After Commerce determined in 2000 that Trek had fulfilled the loan’s requirements, it forgave $392,300 of the loan with the company having repaid the rest.
Assembly Minority Leader Peter Barca, D-Kenosha, said his proposal to require companies awarded state funding to report any outsourcing activity and possibly lose state funding if such activity occurs — which Walker voiced support for last week — wouldn’t apply to examples like Trek, where the outsourcing occurred more than a decade after the loan was issued.
“The clawback provisions that we have, I think they track them for three to five years,” Barca said, referring to commitments that WEDC tracks for job creation, job retention and capital investment. “You can’t track things 10 years later or 15 years. The world changes.”
Barca, who sits on the WEDC board, was more concerned about companies where the outsourcing occurred within a few years after being awarded state funding.
Steve Baas, vice president for government relations for the Metropolitan Milwaukee Association of Commerce, said if the state wants to discourage outsourcing it must reduce the cost of doing business here by lowering taxes and reducing regulatory burdens, something he said Walker has championed. State financial assistance to businesses is a “small piece of the pie” but it’s one that companies will be watching closely, he said.
“Whatever the WEDC board decides to do they have to be very cautious and they have to be hunting with a rifle and not a shotgun to make sure taxpayer resources are being used wisely,” Baas said.
Wisconsin AFL-CIO president Phil Neuenfeldt said workers support Burke because she has expressed support for reducing outsourcing by advocating for federal trade policies that level the playing field.
“We know we need to compete on a global level,” Neuenfeldt said. “But we also know there has to be fairness and accountability to make sure that we as taxpayers hold what we invest in accountable.”
The State Journal asked the Walker and Burke campaigns to explain in detail what kind of policy WEDC should adopt to ensure taxpayers aren’t subsidizing outsourcing.
Burke spokesman Joe Zepecki referred to Burke’s statement earlier this month: “As governor, I will insist that every WEDC award protects against the outsourcing of Wisconsin jobs and companies that don’t live up to their end of the deal give back every tax dollar they received.”
Walker spokeswoman Alleigh Marre responded with a statement that did not address the question, but instead criticized Burke.
“Burke’s own jobs plan calls for bringing outsourced jobs back to Wisconsin, but when asked how she could do this with her family’s company, Burke can’t articulate how it would be done,” Marre said.