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In the wake of another scathing audit of his flagship job-creation agency, Gov. Scott Walker called on lawmakers Friday to eliminate all loans the agency provides to encourage business development.

Walker, who is chairman of the Wisconsin Economic Development Corp. board, also called for scrapping a proposed $55 million revolving loan fund for the agency included in his budget and using the money for education and worker training programs. The governor cited a recent audit by the Legislative Audit Bureau in making his recommendation.

Instead of loans, WEDC should focus on “performance-based economic development tools that limit the state’s risk and to maximize the organization’s strengths,” Walker’s communications director Joceyln Webster said in a statement.

“After reviewing the LAB’s recent audit over the last week, we feel it is vital to move forward with meaningful WEDC reforms to help maintain the focus of the organization on the most impactful economic development tools,” Webster said.

Webster acknowledged “the organization has faced its share of challenges,” but it has also “achieved great success in developing Wisconsin’s first strategic approach to economic development.”

“However,” she said, “it is clear that changes are needed to focus on priorities and maximize the effectiveness of the agency.”

The announcement comes as the Legislature’s Joint Finance Committee prepares to revise parts of Walker’s budget dealing with WEDC on Thursday. Spokespeople for the committee’s co-chairs, Rep. John Nygren, R-Marinette, and Sen. Alberta Darling, R-River Hills, didn’t immediately respond to an email from The Associated Press seeking comment.

Walker and Republican lawmakers created the public-private agency in 2011 to help spur job growth in the state. It was designed to be more nimble and competent than its predecessor, the Department of Commerce.

Two Democrats who sit on the WEDC board criticized Walker’s surprise call to end the loan program, saying it comes “at the 11th hour of budget deliberations” with no input from the board or businesses.

Assembly Minority Leader Peter Barca, D-Kenosha, accused Walker of “lurching from one half-baked idea to another.”

“The proposal advanced today is inadequate to the serious problems the audit found at WEDC,” Barca said in a statement. “Gov. Walker still doesn’t get it – WEDC needs more than spuriously developed ideas for reform, it needs a complete overhaul.

“The serious legal and policy violations are not so much a problem with programs ... they are a result of failed leadership.”

Sen. Julie Lassa, D-Stevens Point, said Walker never mentioned his proposal during a WEDC board meeting just two weeks ago.

“What is the point of having a private-sector board if you are not going to consult with them?” Lassa said in a statement. “It is clear the governor does not have a plan and instead is focused on running for president.”

Senate Majority Leader Scott Fitzgerald, R-Juneau, praised the recommendation.

“I am pleased to see that in light of the concerns raised by the recent legislative audit of the WEDC, the governor is taking steps to ensure that the agency focuses on its most successful development tools,” he said in a statement.

“WEDC continues to provide a valuable service to Wisconsinites and this move provides additional certainty for businesses and taxpayers that the agency will operate efficiently and accountably moving forward.”

Assembly Speaker Robin Vos, R-Rochester, did not immediately respond to a request for comment.

In addition to moving the state away from providing direct loans to businesses, Walker called for using $55 million that he proposed in his budget for a Regional Revolving Loan Fund for education, worker training or both.

Last week, Walker made another surprise move, calling off a proposal to merge WEDC with the Wisconsin Housing and Economic Development Authority hours after the LAB released its latest audit on the agency.

The audit found that the agency failed to verify that businesses receiving state assistance had created the promised number of jobs.

It also found that the agency had reduced its overdue loan balance primarily by extending the due dates for repayment, writing off some loans and forgiving others.

Walker told reporters in South Carolina last weekend after the audit came out that WEDC has “absolutely” been a good steward of taxpayer dollars.

WEDC spokesman Mark Maley declined to comment on Friday’s announcement.

State Journal reporter Dee J. Hall and The Associated Press contributed to this report.

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Matthew DeFour covers state government and politics for the Wisconsin State Journal.